Jordan Furlong is a strategic consultant and analyst who forecasts the impact of the changing legal market on lawyers, law firms and legal organizations.

Staff cuts and short-term thinking

That sound you hear is the rapidly accelerating crash of dominoes. The mainstream legal media is tracking, body blow by body blow, the shocking personnel reductions taking place at law firms throughout the US and UK. One after another, firms are laying off employees, and it seems each firm’s announcement gives three others the confidence to go ahead and announce their own. I’ll be exploring this in greater depth in a post early next week, but for now, I wanted to point out an interesting subtext in all these cuts: the extraordinarily high rate of staff-alone layoffs.

The official reason for these layoffs, of course, is the recession, though the actual causes and motivations will vary from firm to firm. But a staff cut without a corresponding lawyer reduction is a little odd. If a firm chops 30 or 40 associates, you expect to see another 60 to 90 staff go with them, on the theory that these support staff no longer have lawyers to support. So what does it mean when a firm jettisons scores of staff members but leaves the lawyers untouched? Beyond the well-known fact that many firms view and treat their staff the same way golf and country clubs do?

One possibility is that firms have to cut fixed personnel expenses somewhere, but they fear the recruitment black eye that comes from associate layoffs and the seismic impact of partner cuts, so it’s the secretaries, paralegals, IT and marketing people who get the heave. Another is that these firms were overstaffed to begin with, not an unreasonable guess — everyone was living large in the recent boom times, and if a one-to-one ratio of lawyers to assistants made some of the fee earners happy, it was all worthwhile. A darker possibility — that associates are keeping the administrative tasks to themselves to maintain their billable hour totals, depriving assistants of work — is all too likely.

It’s also very likely that in many of these cases, the firms either don’t realize or don’t care about the negative effects of deep, across-the-board staff cuts. Aside from the damage to morale, chopping people in key areas like marketing is just foolish, a reflection of the belief that marketing is a cost center, not an essential element of the firm’s business model. Ron Friedmann rightly points out, in two recent posts, that indiscriminate staff cuts reflect the fact that the “firm has no idea what support is really required. Evenly distributed cuts imply that rational decisions were made in the past, that support needs remain constant over time in spite of the march of technology, and that wild gyrations in practice group revenue have no impact on support needs.”

It looks like many firms are missing an opportunity here to carefully and intelligently review their support needs and re-engineer both their personnel and their infrastructure investment accordingly. Simply cutting staff jobs provides only a short-term bottom-line assist while creating many other short- and long-term problems, whereas a more creative approach could both save money and improve the firm’s operations at the same time. Here are just a few possibilities:

Equip every lawyer with voice-recognition software, so that memos and messages need no longer be dictated or even typed out. Ditto for real-time docketing and billing programs.

Get lawyers blogging about their areas of practice, the release of relevant decisions, changes to applicable laws, and more — instruct them in 21st-century personal marketing.

Outsource or offshore functions like human resources, IT or even research and other quasi-legal tasks — firms have already done this, from West Virginia to India.

Then, save jobs through upsizing: convert legal secretaries to workflow managers, specialize assistants by assigning them to practice groups, train marketers to conduct client meetings and do cross-selling — basically, give your non-lawyer employees the chance to show what else and what more they can do for you, rather than automatically putting them first in line on the chopping block.

There’s a better way to cut costs than simply throwing staff overboard while keeping lawyers around — all it requires is a little more ingenuity, far-sightedness and courage than law firms are used to showing. And as 2009 unfolds, we’re going to see all three of these traits evolve from nice-to-haves to full-scale survival skills.

9 Responses to “Staff cuts and short-term thinking”

Do you really think that those firms are not also pushing lawyers out the door? Sure, they may not have announced attorney layoffs, but they must be pushing people out the door, “performance review” style.

Big law firms live on attrition. Anyone can compare the number of new associates big law firms hire each year to the number of partners made each year and see the disconnect.

Frankly, there is little difference between performance review style attrition and layoffs. Law firms will keep the most talented and let the others go. Call it whatever you like.

Law students and law school recruiter remember layoffs. That is very true here in Boston. So firms are playing the game of announcing staff layoffs and not lawyer layoffs.

Doug, I wouldn’t at all be surprised if these firms also conducted some stealth lawyer layoffs, distinguishing them from others (like Orrick, Cooley, MoFo and Wilson Sonsini) that openly announced both lawyer and staff reductions. But I would be surprised if stealth lawyer layoffs of any substantial size went entirely undetected. I can’t see Reed Smith making lawyer cuts commensurate with 115 staff layoffs without someone like Above The Law or JD Journal catching wind of it. There’s a much stiffer reputational penalty for trying to conduct stealth layoffs and getting found out than there is for “coming out” and “being straight” about lawyer layoffs.

You’re right, firms (correctly) perceive it in their best interests to keep news of lawyer layoffs away from potential recruits. And if they can manage it in dribs and drabs — a few here, a few next week, a bunch more later that month — then more power to them. But when you cuts dozens of non-lawyer staffers at once, that’s a red flag — the marketplace suddenly turns a very keen eye to the rest of your operation, and the hyper-sensitive denizens of ATL put you on close watch. That’s a major risk, and it’s an unwise firm that runs it.

Jordon, I was shocked when I read your suggestion that firms “Outsource or offshore functions like human resources, IT or even research and other quasi-legal tasks”. If you are suggesting that firms hire one of the good research lawyers who do contract work on a case by case basis, I agree. That is, after all, how have made my living for much of the last 25 years. However, research is not a “quasi-legal” task; it is the backbone of any good legal opinion or properly prepared litigation and by lumping it on with human resources and IT, you are perpetuating the notion that, as a senior practitioner told me many years ago, “research is not really practicing law”

I have watched with some dismay while members of the profession and various pundits have promoted the idea that legal research is is something which can be relegated to a student, paralegal or someone who has no background in the laws of the particular jurisdiction. Firms think that research lawyers aren’t as ambitious as their other associates, they pay their research lawyers less than other associates, they often don’t offer them equity partnerships, they write down research hours before other time and generally treat research as an afterthought. Perhaps these attitudes arise from the fact that most lawyers don’t like and do not know how to do good, cost effective research – they don’t like the library (actual or virtual), have the patience and skill to determine, review and analyze the relevant law or the imagination to take the logical leaps that are sometimes required to formulate interesting and winning arguments.

There are research “tasks” which students or paralegals can perform but I would love it if someone will let me know the next time a complex piece of litigation or appeal to the Supreme Court of Canada concludes on the back of research conducted by an Indian lawyer or paralegal. And my answer to to that senior lawyer – go tell it to Bertha Wilson.

Peggy, you’re right that legal research is qualitatively different from IT or HR services, so “quasi-legal” was not the best term to describe it. Certainly, I wouldn’t suggest that research lawyers are inferior to their colleagues at the Bar — if I ever did suggest it, I’m certain that the former research lawyer whom I married would not be happy. :-) I couldn’t agree more that a lawyer who focuses on legal research is 100% the lawyer, professional, and member of the Bar that litigators, solicitors, and other fellow lawyers are. Firms that don’t see this are only hurting themselves.

That said, I do think that legal research is going to be transformed, just as every other aspect of legal practice is. As you note, there are already “gradients” of research tasks, such that less trained or experienced professionals like students and paralegals can carry some of them out. Just as every legal task need not be performed by a lawyer, not every legal research task need be performed by a research lawyer. Over the next several years, that latter category will expand for lawyers of all kinds.

As legal knowledge becomes more widely disseminated and as knowledge management systems become more powerful, the market for legal research will evolve, and the range of research providers — from the most highly trained research lawyer to the mot sophisticated program to the most entry-level person — will stratify accordingly. Research lawyers will of course be able to adjust and evolve too. They’ll become masters of the new knowledge systems, just as adept as they’ve always been at extracting precisely the right information at the right time. But just as some lawyer jobs will disappear as the marketplace reinvents itself, so too will some research lawyer jobs — the challenge to continually upgrade the value provided or be replaced by a less thorough but less expensive option will be the same for both. I would issue the same caution to research lawyers about dismissing Indian legal research that I issue to all other lawyers about underestimating what offshore lawyers can do and will be called upon to do in future.

No question, research lawyers are fully lawyers too. But precisely in that respect, they’re going to face the same sorts of challenges over the next several years that their colleagues will.

I have to confess to not exactly following the linearity of your proposals regarding administrative assistants – if I understand correctly, you’re proposing (a) using software to “mechanize” administrative tasks, (b) off-shoring those administrative tasks not captured by (a), and (c) converting the people who have been made redundant by (a) and (b) into “workflow managers”, whose task is presumably to identify and eliminate redundancies caused by the efforts undertaken in (a) through (c). Something’s not adding up – does a firm really need that many “workflow managers”?

I take your point that firms appear, at first glance, short-sightedly to be cutting administrative positions simply because eliminating those doesn’t cut to the heart of the self-preservation instinct of the profession, but it strikes me that, on any fair reading of your proposals, at some point the administrative staff is going to have to be culled, and rather drastically at that. It would of course be better if firms were doing that culling in a programmatic fashion, rather than what, again, *appears* to be a panicky one, but if firms are going to need to re-structure along the lines you envision, then they are going to need to be radically down-sized – and, for the reasons you outline among others, unfair as it is, administrative staff are the logical point in the chain to make those cuts.

As in any business when revenue is hurting you have to look at the expense side. In the past when fees could escalate a firm could be generous in support staff levels. In reality if technology is used properly why would you have any more then maybe a half a support staff per lawyer or even 1/3 support staff per lawyer. The lawyer should be able to access everything from their desktop not requiring a support staff to retrieve files etc. Faxing should be from the same desktop, and a proper precedents library should allow a lawyer to draft there own documents. And the final thing that happens in law firms that chews up support staff time is to track low value disbursements like laser prints, faxes, scans and even postage and courier. The staff time spent doing this is never really recovered by the disbursement. All the disbursements should be tracked intelligently by software not involving staff time. The byproduct of reducing support staff levels (also it’s not just wages, its the desk, phone, manager’s and it personnel to support the support staff) it could possibly reduce the billable hours required by the lawyer by 200 to 300 hours per year to achieve the same profitability result. Wouldn’t all lawyers want that!!

I’m starting to think I should’ve left this post in the oven till it was fully done….

Bob, I agree that the eventual outcome for law firms will be substantially fewer staff positions than there are today — or at the very least, substantially fewer of the kinds of positions we have now. So many tasks currently done by people within the law firm will soon enough be done by computers or people offshore that firms just won’t need that many bodies on site. As you suggest, my presumption is that the culling now taking place isn’t a systematic re-assigning of tasks lower down the expense chain so much as it is straight short-term expense reduction. But yes, whether done sensibly or otherwise, reduced staff levels are inevitable.

John, you make a good point that firms already have the wherewithal to reduce unnecessary costs, and to better identify the costs they do incur. My preference would be not that firms then turn around and pass these more accurately measured costs directly to the client — a flat amount added to the bill or integrated into the fee itself should recover the costs without annoying the client with every 17-cent disbursement. But anything that introduces more efficiency into a law firm is almost always good.

Bobo, that was me trying to be funny — riffing on the notion that lawyers in law firms treat their non-lawyer staff like second-class citizens. Like pretty much everything else with this post, it didn’t work out so well.

One notable upside of the slashing of staff positions at the larger law firms is the opening of the market for small firms looking for experienced legal assistants and law clerks. Until very recently, it could take months for a small firm to hire a clerk who was not straight out of school because they all wanted the security and convenience of the large firm environment. Suddently, we’re looking a little more appealing to prospects, a change I welcome.

This is another example, I think, of how smaller firms and solos are better positioned to handle the economic downturn.

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Edge International

Jordan Furlong is a Partner with Edge International. One of the world's leading management consultancies, Edge has been providing strategic planning to law firms for more than 30 years. Learn more about Edge.

Stem Legal

Jordan Furlong is a Senior Consultant with Stem Legal and leads its Content Marketing service. Stem provides online profile and business development services for law firms in the U.S. and Canada. Learn more about Stem.